Fred Frailey Blog

Three thoughts (while waiting for the lights to go out)

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One nice thing about living in western Kansas or Nebraska is that you’ll never lose power due to downed trees. Here in northern Virginia we have trees, lots of them. Any storm worthy of the name topples trees onto power lines and there goes electrical power for a few days. Tonight, with Hurricane Sandy nearing, it’s just a matter of time. So here’s what I’ve been thinking . . .

In hindsight, the disaster that was Canadian Pacific was as plain and stark as a deer in the headlights. Here was a railroad whose standards of performance were clearly inferior to those of all other major North American railroads. Yet its chief executive, Fred Green, was allowed to grasp at straws year after year. And he was defended by many smart people, including Kathryn McQuade, a savvy woman who was CP’s chief financial officer and should have known better. Plus, every last member of CP board of directors publicly endorsed Green even as he kept running the railroad sideways. Four months into the job, Hunter Harrison, Green’s successor, is uprooting the ingrained culture of that proud old railroad. I count nine vice presidents who have left since he showed up. The operating ratio has fallen a full percentage point since Harrison showed up, and the railroad is making do with 30 percent fewer active locomotives than it did a year ago. Why, oh why did it have to fall to a disruptive proxy fight to start righting this listing railroad?

Once upon a time railroads ran in rain and sleet and snow. People depended upon them. They still do, but now the railroads don’t want you to. They quake at the least mention of trouble. Amtrak has folded its cards all over the Atlantic coast starting tonight, but not because of downed electric catenary on the Northeast Corridor or tree-blocked routes of the freight railroads it uses. It’s because this may be a consequence of Hurricane Sandy. For that matter, the entire public transportation grid in the Northeast is frozen — not just Amtrak but the airports and even the New York City and Washington subway and bus routes. Aside from the highways, you cannot move in this region if you want to. And the storm has not even struck. Pretty pathetic, I say. Can’t we at least try?

Amtrak is on a spending spree. According to its July Monthly Performance Report, ticket and beverage revenue is A-OK versus the budget. But the expense side was skewered by an added $136 million in costs the first ten months of fiscal 2012 (which ended September 30). Of that, $107 million was for salaries. The scuttlebutt is that this arose because Amtrak never furloughed the hundreds of workers it hired with economic-stimulus grants to fix Northeast Corridor structures and out-of-service passenger cars. The mechanical and engineering VPs begged to keep them. So how do you balance the books? The same Monthly Performance Report reveals that capital spending has been adjusted downward. Specifically, payments for the 130 new single-level cars and 70 electric locomotives were set back, meaning it appears that deliveries are also set back. Maybe that was going to happen all along, But a little birdie who chirps behind my right ear says no. Thank you, Amtrak, for spending my tax dollars with abandon. — Fred W. Frailey

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  • Fred, old guys must think in parallel. I just left our summer cottage on a small island on the Maine coast & was amazed at the onshore news that the NEC was basically shut down at 7 pm Sunday. Now, years ago, I had a roommate while in Mary Hitchcock Hospital in Hanover, NH who was a school teacher in the 1938 hurricane and lost some of his children when the train they were on was overwhelmed by water from the hurricane, so I do believe in avoiding death and destruction but, good heavens, we now have GPS, computers, wireless, etc., and can, in conjunction with common sense, safely run more locally attuned systems! It is indicative of a desire on most of management types to be totally "risk averse." Every move must now be guaranteed to have no negative outcomes, it must not expose the organization to liability, it must be insured against that no matter the cost of said insurance, it must be seen as move totally for the benefit of the shareholder.  I have never put total faith in using a number, operating ratio, to be the sole determinant of wise management but, when feet on the ground observations reveal obvious judgment errors in the operation of an organization and which result in grave balance sheet imbalance, said number does have merit. In my mind, JB has virtually no analytic abilities and is not held to account by his board.

  • 1. Just goes to show how useful boards are.  They generally don't have enough industry specific knowledge and spend enough time per month on their "job" to know whether they are being fed the truth, the whole truth and nothing but the truth...or not.  And, they really don't have all that much "skin in the game".  CP isn't the only place where boards missed significant error.  How about those financial institutions from a few years ago ("everyone's doing it!") or Enron or MCI ("the lawyers said is was legal")?

    2. CSX has been known to whack their Amtrak trains before the forecaster got to the third syllable of "tropical" in "tropical storm".  To be fair to Amtrak, they have managed to keep the NEC running during blizzards when all else in the NEC ground to a stop.  While flooding isn't the same deal as a snowstorm, you'd think everyone would try to keep some skeletal service going just to try to keep an eye on things. You can always crank contingency plans up or down depending on the actual situation rather than just coming to a dead stop 48 hrs ahead of the storm.

    3. Sounds like a royal game of "grow your fiefdom" is going on at Amtrak.  Reward system must be upside down (or non-existent).  Engr and Mech VPs should be rewarded for how SMALL they can make their departments, not how BIG!  Yeesh.  Doesn't JB know he is playing right into the hands of Amtrak's worse critics?  (perhaps he is a double agent!)

  • Welcome to capitalism and the North American system of public corporations.  Everything you say about CP, Fred, is correct, but the same can be said of most corporation in most industries.  Board members are not chosen for their acumen but for their acquaintanceship with other board members.  They certainly are not encouraged to challenge the management at board meetings - or anyplace else, for that matter - and the "code" calls for them to resign "due to lack of time" rather than be a troublemaker.  Obviously, the BN director who, when the PRB investment was being discussed in 1975 or thereabout, asked "How are you going to pay for it?" was nothing more than a troublemaker.  Canada is known for having "clubby" corporate governance so nothing in your comments about CP is at all surprising.  Obviously, the CP board never held Green to any standards.  Bill Ackman and Pershing Square seem to have done all CP stockholders a great favor by challenging the governance of the company.  While heaping deserved praise on Hunter, let's save a bit for Ackman.

    I'd be inclined to wait a bit longer before condemning the wissification of transportation and public officials for reacting as early as they have to the impending storm.  By all indications, the combining of a hurricane with a traditional winter storm is creating a potential that may be worse than anything they have had to deal with previously.  Remember New Orleans?  They knew Katrina was coming, but they didn't know the flood pumping system would fail and the levees over-topped.  As of Monday morning when this is being written it appears that almost the entire Mid-Atlantic and Northeast are being removed from the grid, as they like to say.  Maybe they are exhibiting genius; maybe they are demonstrating cowardice.  None of us knows, nor will we until after the storm has passed.  If they were right to anticipate as much as they have, we can see nice things about and to them.  If they over-reacted, well, think how much fun some people will have condemning those who have the responsibility for keeping public services in operation.  And just what fool built everything right down at sea level, anyway?

    Amtrak?  I haven't ridden it for quite some time, and those of you who have undoubtedly will have opinions and certainly will share them here.  I suspect the reality is that Amtrak - as was the case with CP (see above), has a board that accepts what management tells it rather than telling management what it wants done - and for how much.

    There once was a financial analyst in the policy shop at DOT who wanted to create a consultancy for himself specializing in advising corporate directors.  He would be their guy, not management's.  He never was able to get the venture off the ground for the simple reason that no director was willing to pay real money for his advice and counsel.  It was cheaper to rely on management to explain things, proving that few directors should be directors.

  • Well you notice that the people on the sailing ship Bounty didn't display much common sense(or should that be uncommon sense) and two people are missing and likely dead, and the ship sunk. The Coast Guard had to mount a major search and rescue operation.

  • beaulieu: I'll take your comment to heart before I take an Acela or Metroliner out to sea during a hurricane.  Thanks for the help.

  • Not only is the hurricane merging with a nor'easter to become a perfect storm, but the storm serge will hit at the lunar monthly maximum tide.  NY and the Conn. coast may get 11 foot above normal tides.  Many NY subway routes tunnel below the East River.  Amtrak, NJT, & LI RR tunnel below the East River and/or the Hudson, both of which are tidal estuaries.  They consider tunnel flooding to be inevitable, according to the Trains NewsWire story today.  Who would take a chance at drowning a trainload of people in such a tunnel?  The high tides are also expected to impact coastal power plants, so there will probably be no power to the cat.  Maybe this is why the 3 governors have shut everything down.

  • Bone-headed mis-management.  A fish rots from the head downward.   What else can be said?

  • I'm with Mike here.  As if flooded tunnels were not bad enough as Amtrak goes north up the Shore Line there are a lot of  low bridges and low marshy areas.  It is easy to see trains trying to run on washed out tracks tiping over and falling into the water.  It is not a pleasant thought.  And we know of the danger before hand.  A trainload of people is a lot of lives to put at risk.  

  • Hottshot65 is just a bit snarky -- and Rail Pundit knows snark.  Back in olden times -- which some seem to think were better than the present -- communications capability was considerably less than it is today.  Public and transportation officials really didn't have enough information to justify shutting down wide swatches of the country.  Today, they do.  The stock markets closed today and have announced they will remain closed tomorrow.  That will mean there will be fewer people trying to muck their way around Manhattan.  Besides, if the transportation systems are down, how would all the traders and the large number of clerical employees at the exchanges get to work in the first place?  As beaulieu points out, there has been one sinking with presumed fatalities already.  Applause, please, for the Coasties who are trained to go out and rescue those who don't know enough to come in out of the rain.

  • 1. Boards of Directors are “generally” groups of ‘good ole boy’s who vote as they are told. A Board of Directors is probably one of the most incestuous groups of yes “men” around.  CP had a 1950’s “Canadian” management mentality; ever hear of ENRON?

    2. Hurricane Sandy. Given the absolute reliance on electronic technology within the industry of the day a shut down is probably a wise choice.  Water & Electricity do not mix and do not play well together.

    3. I rode (Amtrak-Pacific Surfliner) this summer from San Diego to Santa Barbara and back in a day.   The Business Class car I was in smelled like a port-a-john in the farm fields of El Centro, California at 3 p.m. in August.   Not a favorable impression from one of their “constituents”!

  • Here in the Northeast, I too am waiting for the lights (and the heat) to go out.  Probably tonight, hopefully not for too long.  The operating offficer's first reaction upon hearing that his crews are encountering floodwaters or massive numbers of trees down is to fear for their safety and perhaps those who depend on them in the situation.  And also a practical concern for how best to get it all up and running again.  Amtrak has figured out that whatever one claims about their ridership, the public will accept a temporary shutdown in the face of something like Sandy, and tunnel flooding represents only the most prominent reason why.  Go for it.  Take care of business.  As for those who would compare this to another era; do you offer to take care of the politicians and tort lawyers if it all goes wrong?  And the board--what it does is another world, which seldom has anything good to contribute unless you count serving as the gatekeeper for capital dollars that directors think are discretionary but which in fact are required to keep it all going.

  • Everyone hunker down and be safe.  Even the Great Lakes are encountering heavy traveling today, not even the Gales of November yet.  

  • Vintage photos taken at places like Horseshoe Curve clearly show how well trees were trimmed away from the right-of-way in bygone days.  Today, overgrown trees encroach on all railroad main lines and also on local neighborhood power lines.  It's small wonder we have frequent power and railway signal outages.  Of course, we cannot afford health insurance to employ armies of tree trimmers as we once did...

  • On Canadian Pacific - We all figured out quite a while ago what a fan you are of Hunter Harrison - it's ok to stop beating this dead horse.

    On service during the hurricane - the goal is to get people not to go out into the storm, and to stay somewhere safe. How would operating the transit systems during the storm contribute to the goal of asking people not to venture out into the storm?

  • This photo suggests its going to be awhile before service restarts on the New York Subway and PATH systems

    instagram.com/.../RYuVQVG6mq

Three thoughts (while waiting for the lights to go out)